by Thomas G. Cloud - May 4, 2000

As we take a look at the first quarter of 2000, there are many different dynamics building in the economic arena. The news of the plummeting Euro has given many experts a belief that the events in the European community are building for a buy of a lifetime in the Euro currency. I will discuss this in more detail below. Every day the media claims that the inflation rate for the year 2000 will at least double from its 1999 rate of a little over 2%. Also, the May 16th meeting of the Federal Reserve may well produce the biggest jump in the discount rate in over five years. Technological stocks that drove the NASDQ up 86% in 1999 have been in a sharp decline this year with the NASDQ down approximately 9%. All of these factors lead us as investors to try to position ourselves by shooting at a moving target. If you read the paper four months ago and compared it to today’s paper, one might think he was in a different country all together – especially if considering the volatility that is driving all markets. In trying to make some sense of current indicators and where they may go from here, I always have a great peace that we at Turamali, Inc. have always focused on and recommended the diversification route. As mandated in Ecclesiastes 11:2, we have always tried to divide our assets into different categories realizing that return of principal is paramount before any return on investment. Below are some indicators that are impacting the volatility in so many different markets.

INTEREST RATES

Interest rates continue to be the main indicator driving the stock market down thus far in 2000. Alan Greenspan of the Federal Reserve has gotten our attention having raised rates five times in the past eight months. The Fed’s fund rate now stands at 6%. Interest rate worries have been expanding as of late with a report by the Commerce Department that stronger than expected factory orders and a Federal Reserve economic report denotes intensifying wage pressures. Many experts believe that the May 16th meeting of the Fed will cause our Federal Reserve Chairman to recommend an unusual .50 percentage point increase in the Fed’s benchmark short-term interest rates. The last time the Fed raised rates over .25 percentage points was in February 1995. This increase in interest rates no doubt will have a slowing effect on the economy and will also drive the stock market down even further. As we look at other interest rates, the prime rate has risen from 7.75% to 9% over the past twelve months. Corporate bond rates have risen from 6.6% to 7.7%. In the same one-year period, commercial paper has risen from 4.8% to 6%. In other words, we are feeling pain in every sector of interest rates after enjoying an eighteen-year decline. C&A has mentioned these changing rates on numerous occasions. Investments will not perform as they have over the past eighteen years. Therefore and as we have echoed, the investor must now become more astute. He must become more "trading oriented" and be willing to move his money around whenever opportunities prevail.

With the economy still strong, there is no doubt that pressures will continue to impact interest rates for the foreseeable future. Therefore, Turamali, Inc. recommends that investors stay out of bonds (except for a small percentage) keeping more positioned into Treasury bills as interest rates are rising hopefully presenting tremendous opportunities later in the year when this interest rate cycle finally tops out.

STOCKS

There is a great deal of information investors should consider when looking at the stock market. To begin, please consider the following that was taken from Harry Schultz’s newsletter of April 30, 2000:

Next revelation: "Stock market indexes will always lie to U!!" That from Simon Crane, HSL think tank member & UK’s leading global market trading advisor. Just back from dinner with Maggie Thatcher, Simon told us: "There’ll always be some stocks that’ll survive, tech & non-tech. Good companies. Half the tech companies will prove bogus, but not fraudulent. Without good ideas. Bad management. Indexes will not tell U much now, if they ever did. It’s now a stock-specific world. Following indexes leads to frustration for most. They lead us astray. Pick profitable firms with real achievable profit growth. Profits, not sales! All the rest are just the rest." I add: Indexes mislead, are doctored, deleting slow stocks, inserting fast ones (which is backfiring as recent tech insertions now a drag). If only a handful of stocks propel an index, what good is the index? And they don’t measure the A/D lines or new highs/lows. Only 9 NASDSQ stocks accounted for ½ of NASDAQ index gain last year, a market of illusions. Fortunately, HSL converted to finding the best quality stocks long ago, trying not to be unduly influenced by index action. We’ll do evermore so.

Misc: "The end of earnings as we know them?" So writes Ed Leefeldt, in Growth Stock Outlook, exposing how many companies fudge earnings reports. E.g., "A Yahoo! Press release last July said the Internet search engine had proforma earnings of 11 cents in 2nd quarter. Yahoo! said proforma means before acquisition-related charges, e.g., amortization of goodwill. Reading on we find they actually lost 7 cents a share." Bloomberg magazine notes: "Even mighty GE plays trick with numbers. Instead of the 13% profit gain which GE reported in 1998, the true figure reportedly was a gain of 5.1%. GE milked its pension funds for money to keep the stock price flying. And nary a whimper from Wall Street, which plays the numbers game better than any bookie." This fudging is why HSL never recommends a stock without a chart pattern that supports earnings reports. Charts tell what people are doing, not jawboning. Even so, genuine earnings now matter as they haven’t for ages. For tech stocks: If U promise the moon U now have to deliver the moon. NASDAQ stocks won’t go higher without earnings backup.

Many dot-coms recently became dot-bombs, with more due. Silicon Valley venture capitalist Don Valentine says "We have 10,000 Internet companies too many. There’s an Armageddon due in the spring" (said in early March; proving correct). E.g., there’s 1,500 e-commerce shoe sites. Look out below. Virtually no one is making a profit in e-commerce to date. Some sales grow, but it doesn’t get to the bottom line. Internet offers 6 million web sites; 98% are rarely visited & are not profitable. These are individual meltdowns, full Monty melts, that go unreported. We’re getting bubbles within bubbles. (The International Harry Shultz Letter, one year subscriptions available at $285 or to contact via e-mail: hsl.mentor@skynet.be.)

The Dow is down 9% so far this year. The NASDAQ is also down approximately 9% as well. These markets have lost in the vicinity of $4 trillion in investor’s equity in the first four months of the year. As we discussed, a lot of this is driven by interest rates which are technical aspects, but as shown by the comments above, there are also fundamentals that are driving this market down. We all know that valuations have been out of sight for the past two years. Reality is now setting in! C&A continues to believe there will always be opportunities in the stock market, but we are expecting more losses in these markets as interest rates rise and the economy begins to slow. As Mr. Schultz says, investors should look for quality. Additionally, investors should be spreading their risks to other markets like Israel. (More information is forthcoming as Tommy has been doing a great deal of research). C&A continues to recommend that each investor should position 20% to 30% in stocks. However, we recommend cutting down on the percentage of high tech stocks as the gains of the past few years will not be sustained. Many companies in this arena who originally had good ideas will simply not make it. As always, buy quality. These should do well over the medium to long-term horizon. Our advice is to stay on the low end of our recommended percentages through the next few months as we all watch interest rates and the market in general.

THE EUROPEAN COMMUNITY

There are so many different dynamics that are involved between the Euro and the dollar currently that we are getting mixed signals. The European Central Bank raised interest rates in March in anticipation of Greenspan’s actions in May. Europe’s benchmark rates now stand around 5.5%. The information that is driving traders crazy, however, is the announcement that was made by the European parliament that it voted to double the European Central Bank’s reserves. This will increase the European Central Bank’s reserves to Euro $100 billion. At present, the European Central Bank’s foreign exchange reserves stand at Euro $45 billion which includes their gold.

Under present rules, the ECB and the Euro stands with a reserve of 15% in gold. There are now pressures building to have the Euro gold reserves extended to at least 25% possibly building to as much as 40% to 50%. In other words, there are factors that are being positioned that could give Europe the power that we have read about in the Bible and this could happen over the next several years.

With the announcement that the ECB would be doubling reserves, it has sent the Euro for the short-term into a tailspin. The Euro has broken below the .90 rate that many feel indicate a bear market. Others view this as an opportunity to buy the Euro. An additional factor to consider is that Greece has formally applied to become the 12th member nation of the Euro. If all goes well, this should officially take place on January 1, 2001. At that point, the United Kingdom, Denmark and Sweden will be the only countries that are not members. Some have said Denmark and Sweden could both hold referendums during 2000 to make a petition to become members. If these events occur, it would centralize much of the money and would give the UK the power that we know they will one day have as is written in God’s word. In short, Bible prophecy is unfolding before our very eyes. The time frame and the investment implications are not quite as clear. Therefore, my best advice is to watch the Euro closely. Do not make a major commitment in your portfolio especially with the dollar on the rise. When the dollar does turn around, there will be a substantial drop. However, that is something that at present C&A does not see either technically or fundamentally speaking. Again, it is always prudent to have some foreign currency within a portfolio. The Swiss Franc, for example, has long-term implications to do quite well.

GOLD

Gold continues to frustrate both fundamental and technical experts. Recently, Frank Veneroso, leading world authority on gold loans, said the correct current fundamental price should be $600 per ounce. But in a monetary crisis or stock market collapse, gold could rise to $2,000 per ounce. While we watch gold trade in the narrow range of $275 to $290 per ounce, it seems at first glance that gold is a dead investment (like the Federal Reserve and world bankers want us to believe). While I am not a bull on gold right now, I cannot imagine having this in my portfolio with all the volatility we are seeing in the marketplace. We continue to see GATA’s legal action gaining momentum on price fixing within the gold market. We have mentioned this several times in the past. Interested parties should visit LeMetropole.Café.com as this is an excellent place to follow this legal action that could in fact send gold sky-rocketing if this is settled and proven that gold was manipulated over the last several years. It’s not uncommon to see price-fixing stories. Many have been breaking lately including Christie’s, Sotheby’s, Microsoft and others that are not as well known. This could be the biggest investment news over the next twelve months, particularly if this case makes it to court. Many believe this is inevitable. (For those of you who do not receive C&A’s e-mail updates, I encourage you to phone my receptionist, Louise, at (800) 247-2812. She’ll be glad to mail you a copy of my most recent update which was entitled, "A Different Way to Play the Gold Market").

Regarding the premiums that many of you inquire about daily, they remain low. While Y2K liquidations have definitely slowed, it is still a buyer’s market. I do not expect premiums to make a lot of changes before June 30th, but certainly they can increase if interest rates continue to rise and inflation does not get in check soon. The best way to play the gold market at the present time is with an investment in one ounce Gold American Eagles or Australian Kangaroos and/or in Canadian Maple Leafs. These coins carry lower premiums than fractional coins that were being hoarded for Y2K use. Do not get caught in the trap of buying numismatic coins yet, until we see inflation returning for certain. These coins carry hefty premiums even after the drops that the numismatic market has experienced.

Recently Ferdinand Lips, a Swiss banker, suggested that a kind of gold-OPEC be set up to protect the gold industry and freedom for honest money (i.e., money that can not be created) from losing its important role that it has always had in manipulation by governments in creating paper money.

SILVER AND PLATINUM

Silver which has dropped over 6% this year continues in a very negative trading range also. Unless inflation fears grow, silver probably won’t make a big move during 2000. Premiums on silver remain low as well due to Y2K sales. The best option for holding silver continues to be the generic one-ounce silver rounds. Junk silver is also a good option. Certainly, if you don’t own silver, it is a good time to buy for the long-term.

On the other hand, platinum has now increased from $340 per ounce (at the time C&A issued a buy signal in March ’99) to $520 currently. I know it seems I may sound like a broken record at times, but I continue to believe that platinum will reach $1,000 per ounce by 2003. The picture continues to include factors like the shortage of platinum in the mining areas of Russia and South Africa. The demand for platinum continues to grow for industrial purposes (i.e., for catalytic converters) and in the investment arena as well. Now that Australia and the United States have issued beautiful platinum coins, the demand and the ensuing publicity has been unbelievable. C&A continues to recommend the one ounce platinum Eagles, Koalas, and Maple Leafs as the way to buy platinum.

The gap between Comex platinum and London platinum has finally narrowed to approximately $20. You may recall that in January the range was $50 to $60. Large contracts are expiring and within the next two months these two numbers will be within $10 of each other.

Remember in the tangible asset area (which includes gold, silver and platinum), one’s portfolio should include about 10% of these types of metal investments. Approximately half of that percentage should physically be held in your possession.

TRADE DEFICITS

While my comments here are brief, this does not take away from the importance of this area. We continue to have an external flow that has reached new heights. At $12 billion per month two years ago, we were told that the trade deficits and external flow of money could not get any worse. In the forth quarter of ’99, we hit $99.8 billion for the quarter. What we have to realize in the U.S. is that the combined current account surpluses of the rest of the world does not equal the current account deficit of the United States. This excess liquidity from trade and investment is simply not there. To finance the current account deficit in the United States, the rest of the world would have to put into the United States more than they earn from trade and investment. This is not going to happen. This continues to be the area that Alan Greenspan focuses on when he is looking at interest rates. We have to realize that if we begin to have falling values in the stock market combined with flight from these financial investments, the U.S. dollar could be on the brink of a sharp sell-off. However, as I noted earlier, this has not happened and the technical charts continue to show the dollar in a bull phase. Without going into any more detail, this is something we will watch closely from behind the scenes trying to catch any sharp turn in the dollar in order to profit from it within our foreign currency basket.

CLOSING THOUGHTS

At C&A, we continue to believe an investor’s fixed income basket should be the largest area. With the outstanding products that are available today that offer fixed returns of 10% or better investors have a peace of mind in knowing expected returns without having to worry about the volatility of the markets. Please contact Turamali, Inc. at anytime if you want to review information on any of these products. Also be watching our website at www.turamali.com over the next couple of months as several new icons will be placed on our home page. It will be about a week or two before the first new icon is added. However, over the next two months, we anticipate adding two to three new icons to help educate investors on several new opportunities.

In closing, we have just received a supply of Piercing the Future which was edited by William T. James. This 431 page paperback book includes chapters authored by eighteen different individuals including Chuck Missler, Zola Levitt, Tim LaHaye, Jack Van Impe, Ed Hindson, Thomas Ice, and Daymond R. Duck. Tommy and I had the privilege of writing a chapter as well and it is entitled, "Your Future and Your Money", and it was written from a Biblical perspective. The cost of the book (including shipping) is $10. If you want to order a copy, please mail a check for $10 made payable: to Turamali, Inc. and we will drop your copy in the mail immediately.

Spring historically is a busy time of year for me and my travel schedule for early summer is already booked solid. Therefore at this time, I am planning to prepare another newsletter sometime during the first couple of weeks of June. In the interim, if I personally can be of service to you, please feel free to set up a conference call with me my phoning my receptionist, Louise, at (800) 247-2812.

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